Foreign Trade Agreement
Cambodia’s Trade Agreements
The rapid economic development of Cambodia has been associated with a strategy to expand the trade integration. Cambodia joined WTO (World Trade Organisation) in 2004 and was given a transition period until January 1 2009, to implement the WTO Customs Valuation Agreement. Along with the principles of WTO, Cambodia could increase greatly its imports-exports.
Preferential Scheme
Cambodia could largely benefit from preferential trade treatments in particular the scheme granted by the US and the EU. In the US, the Generalized System of Preferences (GSP) program provides duty-free treatment to goods from Cambodia since 1997 and contributed greatly to make the US become the biggest export market for garment products in recent years. The EU also grants a preferential scheme, namely “Everything but arms” which guarantees a duty and quota-free to the least developed country. However, on August 12th, the EU’s decided to partially withdraw Cambodia’s duty-free quota-free access to the EU market. The withdrawal of preferential access to the EU market concerns approximately 20% of Cambodia’s exports to the EU. Cambodia may still export those products to the EU, but they will be subject to general tariffs applicable to any other member of the World Trade Organization. The remaining 80% of Cambodia’s exports continue to enjoy preferential (duty-free, quota-free) access to the EU market. More information can be found here.
A similar initiative is also implemented by Canada with the Market Access Initiative for Least Developed Countries. Besides, Cambodia will also benefit from UK’s GSP starting from January 1st, 2021.
Regional Trade Agreements under the ASEAN
Cambodia is also part of a regional trade agreement by being a member of the ASEAN. The ASEAN Free Trade Area (AFTA) now comprises the ten countries of ASEAN. AFTA does not apply a common external tariff on imported goods. Each ASEAN member may impose tariffs on goods entering from outside ASEAN based on its national schedules. However, for goods originating within ASEAN, ASEAN members are to apply a tariff rate of 0-5 %. The administration of AFTA is handled by the national customs and trade authorities in each ASEAN member. The ASEAN Secretariat has the authority to monitor and ensure compliance with AFTA measures.
The leaders of the ASEAN also established free trade agreements with several countries to deepen the trade integration of the ASEAN and welcome more foreign investments. The outcome of this strategy is the ratification of several agreements with Asian and pacific countries:
- ASEAN-China Free Trade Agreements, in effect as of January 1st, 2010
- ASEAN-India Free Trade Agreements, in effect as of January 1st, 2010
- ASEAN–Japan Comprehensive Economic Partnership, in effect as of December 1st, 2008
- ASEAN-Korea Free Trade Agreements, in effect as of January 1st, 2010
- ASEAN-Australia-New Zealand Free Trade Agreements, in effect as of January 1st, 2010
Regional Comprehensive Economic Partnership Agreement (RCEP)
On 15 November 2020, leaders of the ASEAN Member States, Australia, China, Japan, South Korea, and New Zealand signed the Regional Comprehensive Economic Partnership (RCEP) Agreement. The RCEP Agreement marks ASEAN’s biggest free-trade pact since it covers a market of 2.2 billion people with a combined size of US$26.2 trillion. As a result, the RCEP countries account for approximately 30% of the global GDP and 30% of the world’s population.
There are existing free trade agreements (FTA) with each other, but there are limitations. The RCEP will have broader and deeper engagement with significant improvements over the existing ASEAN+1 FTAs while recognizing the individual and diverse circumstances of the participating countries.
The RCEP Agreement will eliminate a range of tariffs on imports and the general elimination of quotas, greater transparency on the application of non-tariff measures, administration of import licensing procedures and the application of fees and formalities connected with importation and exportation between the member countries. The RCEP Agreement will provide a single rulebook covering all 15 markets, which has the potential to significantly reduce complexity and, therefore, compliance costs for exporters. Cambodia will have three to five years to upgrade customs procedures.
Main Benefit for Cambodia: Rules of Origin
Perhaps the most striking feature of the RCEP Agreement, and the one which could favor Cambodia, is with respect to the rules of origin (ROO) definitions, which are now consolidated for the first time amongst participating nations. ROO provides criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports. ROO are used by countries to determine whether imported products shall receive most-favored-nation treatment or preferential treatment and for the application of labelling and marking requirements. Cambodia, for example, follows the 40% rule with respect to the COO requirements under a number of its trade agreements, whereby at least 40% of the value of the imported product must have originated from a member state to qualify for tariff relief.
Australia, China, Japan, New Zealand, and South Korea are technically advanced nations and to that end have high-end factories, where labor and production costs are relatively high. This means that for processes that need careful labour-intensive involvement, such as finishing garments, the unified rules of origin regulations under RCEP should motivate an increase in manufacturing investment for the finishing of products, such as garments.
Towards bilateral agreements
China and Cambodia signed a free trade agreement (FTA) on October 5th. Trade between the two countries was valued at over US$7.4 billion in 2018 with China enjoying a trade surplus of over US$6 billion. Through the FTA, the two countries aim to boost bilateral trade to US$10 billion by 2023. This is the first bilateral agreement ratified by Cambodia.
This agreement will certainly accelerate the exports of agricultural goods in particular banana and mango, following the increasing exports figures in 2019 and 2020. Cambodia exported more than 235,000 tonnes of fresh yellow bananas in the first nine months of 2020, up 225 percent year on year, according to a report by the country’s Ministry of Agriculture, Forestry and Fisheries. Besides, both countries signed a protocol of phytosanitary requirements for fresh mango exports.
Cambodia has officially launched the negotiation process with South-Korea to reach to an agreement. Further discussion has also begun with Russia, the UK, India, Mongolia Eurasian Economic Union (EAEU) bloc, which comprises Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia.
